Major Relief to Small Taxpayer’s in GST

The Central Government has issued Exemption Notification No. 8/2017-CT(Rate) dated 28-06-2017 giving relaxation to Registered Persons under GST from major (and draconian) compliance required under section 9(4) of the CGST Act, 2017.
As per Section 9(4), every registered person (including composition dealer u/s 10) is required to pay GST on every inward supply (purchase) of goods or services from any unregistered person. The implication of this provision is that even if a registered person book expense of Rs. 10 say for tea/snaxs in his accounts, he is required to pay tax on the same under reverse charge mechanism. The entire trade & industry has been vehemently protesting against this provision because of enormous compliance burden which has the potential to stop buying goods or procuring services from unregistered persons who may be a very very small local vendor!!

To overcome this difficulty, the above notification issued u/s 11(1) exempts intra-State supplies of goods or services or both received by a registered person from any supplier, who is not registered, from the whole of the Central Tax leviable thereon under sub-section (4) of section 9 of the Central Goods and Services Tax Act, 2017.
The said exemption notification which shall be applicable from the date of roll out of GST i.e. from 1st July, 2017 provide exemption from payment of tax, where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the suppliers, who is or are not registered, do not exceed Rs. 5,000 in a day.

In simple words, if the total value of inward supply of goods or services or both in a single day from one or more unregistered persons exceed Rs. 5000, then the registered person has to pay tax on total value under reverse charge. It is pertinent to note that the limit is not per supplier but from all such suppliers during the day. That means, if the value of inward supply from unregistered persons in a day is say Rs. 5100, then tax is payable on total Rs. 5100 and not on the excess i.e. Rs. 100.

Time of supply of goods/services under reverse charge:

The time of supply in case of goods, as per Section 12(3), when the reverse charge tax is payable, is the earlier of receipt of goods or date of payment in the books of recipient. And in case of services, as per Section 13(3), the reverse charge tax is payable on earlier of the date of payment in books of accounts or date immediately following 60 days from the date of issue of invoice. The moot question that arises is that to claim the exemption, whether one has to look at the date of receipt of goods/services, date of invoice, date of entry of invoice in books, or the date of payment. GSTsathi is of the view that for the purposes of calculating exemption value of Rs. 5000 in a day, the date on which such supply is received should only be considered.

When inward supply include both taxable & exempted supply:

There may be a situation when such inward supply include both exempted goods/services and taxable goods/services. In such cases, the value of exempted goods or services shall be ignored for calculating the aggregate value of Rs. 5000 per day.
Irrespective of value, no tax under reverse charge is payable for inward supply of any goods or services which is exempted u/s 11.

When inward supply includes both intrastate & interstate supply:

There may also be a situation when such inward supply includes both intrastate and interstate inward supply. GSTsathi is of the view that, since there is no exemption for interstate inward supply, tax is payable under reverse charge for the same (irrespective of amount involved) and exemption upto Rs. 5000 per day can still be claimed for intrastate supply.

As per GSTsathi, looking at the impractical compliance burden cast on the genuine taxpayers, the limit of Rs. 5,000 per day is very low and the government should had exempted at least Rs. 10,000 per day as suggested in the exemption schedule released by it. Though small registered taxpayers would be immensely benefited by this exemption, the same won’t be able to provide any relief to the medium & large size assessee’s who require to pay much more than Rs. 5000 for day-to-day expenses to small vendors/suppliers.

Also, similar notification is not required to be issued by any State Government for extending parallel relief from State Tax (SGST). This is because Section 11(4) of SGST Act automatically treats the exemption notification issued by CG under CGST Act as notification for the purposes of SGST. In other words, the notification issued u/s 11(1) by Central Government has the effect of exempting both the Central Tax & the State/UT Tax.

The various scenarios under which the said exemption shall be eligible are shown in the below chart for easy understanding:-

Note:Views presented in this article are personal view of the author. Information presented in this article is intended for information purpose only and does not constitute any legal opinion or advice. Readers and Users are requested to seek formal legal advice prior to acting upon any of the information provided herein.